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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: JPR who wrote (63730)	9/4/1998 2:32:00 PM
From: freeus	Read Replies (1) \| Respond to of 176387

Since traditionally P/E is "supposed" to be at or below the company's earnings growth, the message we keep getting is "Buy only undervalued stocks" meaning "Buy only stocks whose p/e is below the current rate of growth of earnings". The problem for us Dellheads and other tech shareholders is, if Wall St really goes back to investing that way, tech stocks get hit badly. In other words if investors flock back to "p/e" valuations when they have a "flight to quality" then companies with large growth rates but even larger p/e's may get pummeled. How can p/e be used reasonably? Well the belief of p/e pundits is that eventually the stock will sell at the price where p/e = growth rate (of earnings). Since the word "eventually" can mean anytime, I dont know how you prove or disprove that. With DELL because it is growing so amazingly (the company) we just figure the share price will too. Freeus Look at KO: for the longest time because of the name it supported a high p/e. But now that the market is collapsing some say it is going back to its proper value. Personally I dont think this bear market really proves much, and when the market recovers ko (and others like it) will too and once again p/e wont be how investors invest. I hope this makes sense. If not, someone else's answer might.

To: JPR who wrote (63730)	9/4/1998 3:11:00 PM
From: Mohan Marette	Read Replies (1) \| Respond to of 176387

REF: P/E, as for DELL-Ouch!!!! JPR, The way I understand it, Trailing P/E tells you what happened in the past and Forward P/E shows us what the pundits think about the future prospects of earnings vis-a-vis the current stock price.I guess different people interpret it in different ways that suits their particular line of thinking.Is that what your take on it??? I don't know how accurate I am on this perhaps there others out there who might have a different take on the thing and tell us about it. How'bout that Dell today,Ouch!!!!!!

To: JPR who wrote (63730)	9/4/1998 4:25:00 PM
From: Chuzzlewit	Read Replies (2) \| Respond to of 176387

JPR, perhaps the best way to view this is to invert the ratio so that you get a yield (i.e. earnings/price). Now it should be intuitive that the yield ratio is sensitive to several things. 1. Just as in bonds, when inflation is low, yields tend to be low (remember, yield is just inverted p/e, so a low yield implies a high p/e). 2. Just like CDs, yields will vary reflecting a changing environment, but unlike CDs, yield are backward looking. Nobody would invest in a CD based on last year's yield, but that is precisely what they do when they base their decisions on p/es. But it is worse than that. If you were going to be consistent you ought to at least use last year's price to calculate the yield. For Dell that would be somewhere around $50, and then you would use the earnings in the next four quarters to calculate the yield. 3. But these yields are not static. Dell's yield is expected to increase by virtue of earnings growth. This means that investors will pay more (i.e. accept a lower current yield) in anticipation of future yield increases. 4. Finally, the marketplace is competitive, so yields on stocks compete with yields on bonds. Obviously, when bond yields drop, so do stock yields. Now I use a metric that I call CNPEG to measure the relative price oc growth. The way it works is to calculate the PEG (which is the ratio of the P/E to the expected long-term growth rate) for the stock you are examining and the PEG for the market (I use the S&P500). I divide through by the PEG for the market, and this tells me whether the stock is relatively undervalued when normalized for the market. CNPEG stands for "Chuzzlewit's Normalized PEG". A CNPEG of less than 1.00 indicates relative undervaluation. TTFN, CTC